The wife of the controversial Chinese leadership contender Bo Xilai is "highly suspected" of murdering the British businessman Neil Heywood, state media have reported, in the biggest scandal to hit the party for decades.

Gu Kailai and Zhang Xiaojun, who worked at the family's home, have been transferred to judicial authorities, the official news agency Xinhua reported.

Bo, once tipped to reach the nation's most powerful political body in this autumn's power transition, has been suspended from his party positions because he is suspected of "serious disciplinary violations", Xinhua reported separately. The suspension effectively ends his political career. He was dismissed as party secretary of Chongqing last month.

Britain had already asked China to investigate the death of Heywood in Chongqing last November after concerns were raised that the circumstances were suspicious. The 41-year-old businessman's family had said they believed he died of natural causes.

The statement said: "According to investigation results, Gu Kailai, wife of comrade Bo Xilai, and their son were on good terms with Heywood. However, they had conflict over economic interests, which had been intensified .

"According to reinvestigation results, the existing evidence indicated that Heywood died of homicide, of which Gu Kailai and Zhang Xiaojun, an orderly at Bo's home, are highly suspected."

It said the investigation had begun when Bo's ally the former police chief Wang Lijun fled to the US embassy in Chengdu in February, and flagged up Heywood's death. Wang is now under investigation by Chinese officials.

The statement added: "According to senior officials from related authorities, China is a socialist country ruled by law, and the sanctity and authority of law shall not be tramp[l]ed. Whoever has broken the law will be handled in accordance with law and will not be tolerated, no matter who is involved."

Rumours that Bo had been ousted began circulating early on Tuesday, and officials were called to meetings in the afternoon, where they were briefed on events. The 62-year-old son of a Communist "immortal" had climbed steadily through the party ranks, and many had believed he could reach the top political body, the politburo standing committee, this autumn.